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Updated over 4 years ago on . Most recent reply

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Joe Blaine
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Prepayment Premium - What is this insane Fee!

Joe Blaine
Posted

Hello,

First post here, but regularly scroll through BP for it's great real estate advice! 

I bought a 1.4M, 7 unit property in Revere, MA 4 years ago, and used FHA Multifamily loan 25 year term, 30 year amort, 25% down. I'm a cash flow investor so am thinking long term buy and hold. Since I use LLC's, I find that I have to get commercial loans, and the FHA multi has awesome terms! But, given the current interest rate environment, I recently shopped for a better rate, and came across another lender offering fantastic terms with a better amort, so decided to make the move.

First, my current lender says I have to wait 21 days to receive funds to move to new lender, annoying, but fine. Then they send us the statement, and it has hundreds of thousands of dollars of prepayment fee's! Turns out their prepayment fees are part of a yield maintenance period (a term I had not heard of and obviously didn't look into when we applied for the loan, though I do remember asking them about prepayment penalties by phone and they said there weren't any) making the cost exorbitant. In other words: refinancing according to them would cost us an extra 50% of our current principal, more than the cost of the property in its entirety!

I already spent thousands of dollars with the new lender for them to come out and view the property and have their lawyers put everything together, but it can't possibly cost me now hundreds of thousands of dollars to get out of my FHA multi family loan, can it?! Would this applicable if I sold the place?

Any and all advice, much appreciated!

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